Interactive Investor
April 4, 2005
BOSTON (AFX) - One day after the company issued its long-awaited financial
outlook for 2005 and beyond, analysts covering Pfizer were mixed as to whether
the company was going far enough in cutting costs.
Pfizer Inc. said Tuesday its 2005 earnings will be markedly lower than in
2004, but "double-digit" profit growth should resume in 2006. The company
issued the forecast during its annual analyst meeting on Tuesday.
In what the company repeatedly called a "transitional year," Pfizer executives
told listeners Tuesday that it expects adjusted earnings of about $2 a share for
2005, compared with the $2.12 a share it earned for 2004. Net income, excluding
extraordinary items, should amount to $1.16 a share this year, the
pharmaceutical giant said.
Analysts had estimated, on average, Pfizer would post 2005 adjusted earnings of
$2.13. The estimates ranged from $1.99 to $2.35.
Pfizer also outlined its previously announced restructuring plan, which it told
analysts should save the company $4 billion a year by 2008, or about 12 percent
of the company's cost base. The plan will cost between $5 billion and $6 billion
to implement through 2008.
"We urge caution to investors," said Caris & Company analyst Le Anne Zhao in her
note on Wednesday. "In truth, PFE faces 'very hard times' in 2005-2007 that can
require substantially more than the current target of $4 billion in total
annualized cost savings by 2008, which were not specifically detailed at
yesterday's meeting."Pfizer chairman Hank McKinnell had told analysts Tuesday that the proposed cuts
"will have a modest impact this year. We've completed the planning phase and are
moving onto implementation." He added that the savings "will really kick in in
2006."
But Pfizer was also vague about where it specifically plans to cut, stating
simply that the savings would be seen by reductions in procurement spending and
duplication of operations.
The company already had announced it planned to save about $4.2 billion in 2005
from "cost synergies" related to its merger with Pharmacia.
When asked by analysts if Pfizer planned to lay off significant numbers of its
38,000 sales force, Pfizer management said it expects a "modest reduction." The
company noted that while it has between two and five sales representatives
pitching one drug per doctor, it plans to lower that ratio.
"Interestingly, on the heavily anticipated topic of potential sales force
reduction, PFE would not quantify by how much the sales rep base might shrink,"
wrote Prudential analyst Timothy Anderson in his note.
"PFE also said that its competition (i.e. other drug companies) would probably
be disappointed that PFE is not cutting its sales force to a larger degree. If
competitors are disappointed, then so too should be the investment community,"
Anderson added.
Morgan Stanley, meanwhile, was more concerned with Pfizer's future projections.
Pfizer has attributed the anticipated dip in 2005 earnings to the loss of patent
exclusivity on several key products and a slowdown in sales of its popular Cox-2
pain reliever Celebrex, events that most analysts have already anticipated.
But in 2006, the world's largest drug maker said it expects both earnings and
sales growth to make a recovery as new products begin to add to the company's
revenue. The company added it also sees "accelerated" growth for 2007.
"Management's expectations for revenue growth in 2006-2007, predicted on a
recovery in the coxib [Cox-2 drug] market and strong new product sales, seem
overly aggressive," said analyst Jami Rubin, who raised her rating of the stock
to overweight.
Yet Rubin added she was pleased with the proposed cost-cutting plan.
"We were pleasantly surprised by the magnitude of the cost saving plan that
management earmarked through 2008," said Rubin. "Investors were pleased to hear
management own up to the challenging environment and exploit its mighty
financial strength."
Analysts at UBS echoed those sentiments.
"Though lacking specificity, we view targets as highly achievable, management
has a strong record in meeting/exceeding such targets, and the EPS leverage is
significant," wrote Carl Seiden of UBS on Wednesday.
Pfizer had delayed issuing its 2005 financial outlook, in part, until it
received word on whether the Food and Drug Administration would allow its Cox-2
pain relievers Celebrex and Bextra to remain on the market. Both had been
suspected of causing cardiac problems in certain patients, and rival Merck
withdrew a similar Cox-2 drug, Vioxx, from the market last year. In February, an
FDA advisory panel recommended keeping the Pfizer drugs on the market.
Pfizer said that it expects 2005 sales to be even with 2004 sales of about $53
billion.
Over the next two years, Pfizer will see mushrooming generic competition as
patents expire on several of its lucrative drugs, including Norvasc and Zoloft.
Norvasc, Pfizer's second largest drug, had 2004 sales of $4.8 billion, while its
third best-seller, Zoloft, took in about $3.4 billion.
Meanwhile, Pfizer's No. 1 selling drug, Lipitor, is set to lose its market
exclusivity in 2010. Lipitor had sales of almost $11 billion in 2004. The
company is suing Indian drug maker Ranbaxy both in the U.S. and abroad for
trying to put out a generic version of Lipitor. The Austrian Patent Office ruled
in Ranxbaxy's favor last week, a decision that Pfizer says it plans to appeal.
A U.S. decision on the Lipitor case is still pending. Management said Tuesday
that Pfizer still expects to prevail in the matter. A decision is expected by
early 2006.
Pfizer shares were down 0.4% at $27.00 on Wednesday.
This story was supplied by MarketWatch.
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